Rhodes College Board of Trustees unanimously adopted the college’s new ten-year strategic plan, Achieving Our Best: A Strategic Vision for Rhodes College 2020-2030, at their most recent meeting in the second week of Oct. The plan addressed concerns about a need to “prepare for an uncertain future in which political, economic, and technological change could radically disrupt the way Rhodes and its sister institutions function.”  

Rhodes is adopting “an entrepreneurial mindset toward the development of new revenue-generating programs,” to help mitigate high tuition rates and declining net tuition revenue per student. “Institutional grants, which come from endowment proceeds and a significant proportion of current operations, have more than doubled in the last ten years,” according to Rhodes. “We will need transformational financial endowment support for scholarship and need based aid as we move into the future.”  

Absent from Rhodes’ strategic vision is any mention that the Trustees of The Bellingrath-Morse Foundation trust filed a lawsuit in Alabama against Rhodes College, Huntingdon College, and Stillman College, in Aug. 2017. In Oct. 2018, the Court issued an interlocutory partial summary judgment ruling in favor of the Trustees of the Foundation. According to Rhodes’ most recent consolidated financial statement, the College plans to appeal this decision. 

All three colleges are beneficiaries of the foundation’s trust created in 1950, prior to Walter D. Bellingrath’s death in 1955.  Bellingrath Hall is named in his honor. The Bellingrath Scholarship and the Morse Scholarship are named for him and his wife, Bessie Morse Bellingrath. Bellingrath was a longtime supporter of Rhodes (then known as Southwestern at Memphis), as well as a friend of President Charles Edward Diehl. According to Bellingrath’s Trust Indenture, one objective of the trust included a devotion “to the intellectual and religious upbuilding of young men and women of our Southland, as well as to foster and perpetuate those Christian values which were recognized by our forefather as essential for the building of a great nation.” 

The lawsuit filed by the Trustees sought, among other things, to redirect a portion of the foundation’s financial support from the college beneficiaries to the non-profit organization Bellingrath Gardens and Home Foundation, in amounts to be determined annually at the Trustees’ discretion. Since 2007, Bellingrath Gardens and Home Foundation, Inc. have operated the gardens under a license from the Bellingrath-Morse Foundation. 

In late 2002 the trustees decided to increase the subsidy to the gardens from 15% to 20% of the foundation trust’s net income. This gave rise to potential litigation with the college beneficiaries, since a previous agreement said if the gardens’ subsidies “exceed 15% thereof, then, upon the request of any Beneficiary, the Foundation agrees to seek court instruction as to whether or not the Gardens should be kept open.” This resulted in a settlement agreement in 2003 that is at the center of the current litigation.  

In 2003, the college beneficiaries agreed that the trustees could devote as much as 20% of a new distribution amount, based upon ‘total return,’ rather than ‘net income,’ to subsidize the operations of the gardens.  

The college beneficiaries also agreed that support for the gardens could not reach above 20% at any time in the future without the unanimous consent of the beneficiaries. The cap on the gardens’ subsidy permitted the colleges to rely on a steady source of funding to support their educational missions. 

Prior to filing the lawsuit, Bellingrath Gardens informed the trustees that its financial condition had become dire and that, without increased finding from the Bellingrath Trust, the gardens would not be able to operate. The trustees claim that they sought an agreement with the colleges to increase funding to the gardens but were unable to do so. Minutes of a May 2016 meeting of the Gardens Foundation’s Board of Directors show that they attempted to strike a deal with Rhodes involving a request for $1 million in deferred capital expenditures and up to $500,000 per year to cover negative cash flow for the gardens. After Rhodes made a counterproposal, the board discussed how even though they never enforced the requirement of a strong Christian course load, that requirement could still be used as leverage in court negotiations.

Comments on the risk of negative publicity were directed towards former President William Troutt as well. There was also mention of how Troutt was soon to retire, and that “new players” may prove more amendable. 

In the current lawsuit, college beneficiaries argue that this cap provision forever bars the gardens from receiving more than 20% of the distribution amount, under any circumstances. Another issue at hand is Rhodes’ assertion that the gardens are neither a beneficiary of the trust, nor is its operations the primary or preeminent purpose of the trust. 

The Court noted in its partial summary judgment that the plain language of the Trust Indenture clearly indicates that the perpetuation of the gardens is a material purpose of the trust. For example, Mr. Bellingrath described how he and Mrs. Bellingrath “found untold happiness in the development of the Gardens.” He went on to say that his wife’s “genius and artistry were responsible for the development of Bellingrath Gardens.” Therefore, the “Gardens in all their beauty represent her, and must be maintained as a fitting permanent memorial to her in the charitable religious and education uses to which they are dedicated.”  

The Court added, “For his Trust, Christian education was ‘another worthy objective’ in addition to the perpetuation of the Gardens.” 

The Rhodes’ endowment consists of approximately 600 individual funds established for a variety of purposes. At the end of the 2019 fiscal year, the endowment net assets total was $352.2 million. Rhodes notes in its policy that “[t]he College is in an unusual position in that the control of the investment of a substantial part of the College’s total endowment is held in trust by others. The largest and most significant amount is managed by the Bellingrath-Morse Foundation.” 

Rhodes Vice-President for Finance & Business Affairs Kyle Webb contacted The Sou’wester to correct what he called a factual inaccuracy. “This is not unusual.  It is actually quite common for colleges to have a portion of their endowment in Assets Held in Trust by Others,” Webb said.

Rhodes’ share of the foundation’s assets at June 30, 2019 was approximately $53,577,000. During each year ended June 30, 2019 and 2018, the College received funding of approximately $2 million from the Foundation. By early 2018 the trustees had spent more than $1,500,000 of trust funds on legal proceedings against the colleges, according to court records.

Beneficiaries intend to appeal the decision of the Probate Court. According to Rhodes’s financial statements, the likelihood of a negative outcome in this matter on appeal and the financial impact of an ultimate adverse determination are unknown at this time. However, there could be material impacts of an adverse resolution.

Rhodes College did not respond when asked whether its new entrepreneurial mindset toward the development of new revenue-generating programs is related to the Court’s decision. 

NOTE: A previous version of this story incorrectly said that Rhodes was set to bring the case before the Supreme Court. It has been changed to be more accurate.